3. How to invest in single family rental homes ?

Reasons for Increased “Tenant Stickiness”

  • Privacy — No other tenants above, below, or beside you. Tenants, of course, prefer this. No sound of other tenants arguing through thin walls. No kids running nonstop in the unit above. That smell of fish lofting through the building is from your own cooking, not the neighbor’s.
  • More spacious than townhome, condo, and apartment living — The tendency to feel claustrophobic in the space is diminished. That two-bedroom, two-bath condominium sandwiched between units above and below likely felt cramped during the stay-at-home policy.
  • Personal involvement in property upkeep increases emotional attachment — Single-family living provides an emotional attachment to the property. Tenants get to plant the flowers they like, add their own patio furniture and watch their kids play in the yard. It’s their home, not just a place to rent.
  • Available and free on-site storage — Americans have a lot of stuff! A single-family home provides more storage space than in other types of housing: attics, basements, sheds, closets.
  • Feels more like a home than a rental unit — There is often larger inside space, as well as outside space like a yard or patio. Tenants with pets and small children tend to become more permanently set up in a single-family home where there’s a fenced-in yard for the kids and dog to romp and play.
  • School stability — Single-family homes attract families with children enrolled in schools they want. Changing schools is a huge disruption for children and parents — and avoidable if they stay put.
  • Other conveniences — Single-family homes provide amenities and conveniences not always found in other rental options. These include off-street or even garage parking, a washer and dryer in the unit, and additional living space.

If you’re looking to invest in a rental property but need some extra cash to make a downpayment, then you can use a service like Hometap. Hometap invests in the equity in your home, and they make their money when you either sell the property or settle the investment with them before the end of the 10-year term. It’s just one way of getting extra cash without having to take out a traditional loan and make monthly payments. 

Single-family vs. Multi-family Property

Single-family homes are usually off-limits for investors seeking cash flow. Multi-family homes offer much larger returns relative to the sales price, partially due to a multi-family property’s limited interest. The real kicker is in the details – a collection of events favors single-family homes over the multi-family property as an asset class.

The single-family home advantage can be broken down into a few key components:

  1. Appreciation – Single-family homes tend to appreciate faster than multi-unit properties because of a changing demand curve. Investors tend to have much greater access to capital more reliably, whereas live-in demand ebbs and flows with employment. Investors using leverage to purchase a single-family property have significant cash-on-cash upside on any uptick in rental property values.
  2. Liquidity – At any given time, far more buyers are interested in a single-family home to live in rather than a multi-unit property. For one, higher prices for multi-family units leaves out much of the market interested in owning a home. Secondly, few people interested in a single-family home are interested in the rental business – even at a discount, few people would agree to make the switch to live in a multi-family home. Besides, it’s likely much of the market for live-in homes is already seeking to escape a shared wall with another person.
  3. Potential tenants – This is purely anecdotal, but other landlords’ experiences suggest that the rental pool for single-family homes is better than the rental market for duplexes or apartments. Single-family renters are more likely to be established families – people interested in living in the same place for a considerable period of time due to job proximity, school districts, or neighborhood choice. Lower turnover boosts rental profits, as the home experiences fewer vacancies and less tenant-to-tenant maintenance like painting and landscaping.

Regardless of if you decide on a single-family or multi-family property, you’ll probably need a good real estate agent to help you find a home. If you’re looking to buy a rental property and need help figuring out the market, you can use a free service like HomeLight to find a real estate agent in your area who can help you find the best deal for you. 

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